Thursday, April 7, 2011

Gold, After Setting Another Record, Drifts Down To Miniscule Loss

Despite the U.S. Dollar Index trending down slightly, and despite WTI crude oil jumping in the afternoon to above $110/barrel, gold softened after making a new record of $1,466.20 at 9:50 AM ET. The rest of the day was spent going back and forth, with the final slide being large enough to keep gold from the gains column. Instead, the metal closed with less than a dollar loss when regular trading was over. Although the post-ECB-hike letdown wasn't much, there still was one.

Gold started off the pit session hovering, but then descending as 9 AM approached. Double-bottoming at $1,456, the metal then took off when the stock markets opened and made that new record. Unfortunately, it couldn't keep its footing and it slipped back to $1,460. The rest of the morning saw an uneven decline, with the metal's stumbling about leading to a final slip to below $1,455.

The afternoon saw it regain its footing and stride back up to $1,458, but another slip drove it below $1,455 again at 1 PM. Primed by the earlier stride, it climbed up to $1,460 which it reached at 3:00. As of that time, the consumer-credit number was released. Showing a 3.8% annualized gain for the month of February, the biggest category increase was in non-revolving credit like car loans and student debt. The increase was more than expected.

Gold ignored that report, instead drifting along at $1,460, and stepped up to $1,461 after sliding a little beforehand. Unfortunately, it slid back again as the end of the electronic-trading hitch loomed. As of the close, the spot price was $1,458.40 for a drop of $0.70 on the day. The KitcoGold Index attributed the entire loss to predominant selling.

The loss, being miniscule, suggests that gold's rise prior to the 25-basis-point hike fully discounted the inflationary implications. Given gold's turnaround, a further descent back to the breakout point is possible. The metal may sink to $1,445-$1,450, and in so doing give a second chance to get in for those who wish to. Unlike at the peak of a month ago, gold's Relative Strength Index (found at the top of its chart) was not above the oversold 70 level prior to it sliding back. Despite the letdown, gold has gotten enough traction to make for another upwards run once its gets over its droops.

As for the U.S. Dollar Index, its overnight gains eroded away completely in regular trading. After flailing about when the session began, and leaping up to a high of 75.82 at 9:15, the Index skidded down to 75.55 little more than an hour after that peak. Its un-frenetic reclimb peaked at a lower level, and it spent most of the afternoon in a two-stage slide that took it below 75.55. It then settled into a range between 75.52 and 75.58. As of 5:30, it was about to test the top of the range at 75.565.

Its own six-month chart, also from Stockcharts.com, shows it eking out a gain after yesterday's sizable loss:

Like gold, the Index all-but discounted the ECB rate hike. Expectations for a further decline, which I admittedly shared, were disappointed by it marking time instead. The Index failing to fall further established 75.5 as a support level. There may be some more droppage in its future, but the ECB downwards driver is now spent. As with gold, a new high in crude oil failed to affect the greenback much. There's a chance of the Index settling into a range between 75.5 and 76.5.

Although today was a letdown day, gold did manage to set a new record and kept its daily loss to a minimum. Technically, it's in a good position after made a breakthrough from the $1,445 level it's been prevented from crossing since the beginning of last month. It's still on track to put in a sizable spring advance, but that advance would likely melt away when spring turns into summer. Seasonality, unfortunately at times, happens.

Originally, The Gold Bubble was a perch for me to watch what I pegged as a nascent gold bubble - or, to be less controversial, the third stage of a long-term gold bull market.

As time went on, I drifted towards commentary on gold and the greenback, plus the interrelation between the two. The rest of the posts featured items about gold that I thought were interesting. I ended up diverging from the theme that the title promised.

So, I've reactivated the old blog under a different name. "The Gold Watcher" is a more accurate title for the blog that The Gold Bubble became.

The Enter Stage Right article that kicked off the predecessor blog contains a fuller explanation of my reasoning about a gold bubble: it's here. A sequel is here.

Search This Blog

Custom Search

Disclaimer

Although I try to compensate, I do have opinions that are almost certainly influenced by what I've done with my own money. For the record, I am long gold-exploration stocks. On the odd chance I mention one that I own, I'll disclose it fully. I don't own any physical gold, nor do I own any producers or any well-known explorers.

Also, I must emphasize that I am not a registered investment advisor, and that I am not licensed to dispense investment advice in my jurisdiction of residence (Ontario, Canada). Consequently, this is not an investment-advice blog. It shouldn't be taken as such. I cannot provide any actionable material in the standard sense of the term; if you're intrigued by anything here, you'll have to see to your own trigger.

In addition to the standard boilerplate caution for you to do your own due diligence should you invest or speculate, I'd like to add a special caution: gold, by far, is the asset class that elicits the most emotions. A solid consensus of experieced investment professionals considers emotionality to be a performance-hobbler. In addition to doing your own research, and/or using a licensed professional to do so, I suggest that you watch yourself.